By Gareth Vaughan
Another round of political brinkmanship is playing out in Washington DC over the United States government's debt ceiling.
There are predictions of global financial chaos if Democrats and Republicans can't agree on a deal to raise or suspend the debt ceiling, currently at US$31.4 trillion, soon. Treasury Secretary Janet Yellen says if something's not done the US government won't be able to meet its financial obligations as soon as June 1. That includes salaries for government employees and the military, pensions and making interest payments on government debt.
President Joe Biden says if the US defaults on its debt "the whole world is in trouble."
There is, however, a silly sounding yet constitutional solution available. It involves minting a very high value platinum coin.
In the latest episode of interest.co.nz's Of Interest podcast I spoke with Rohan Grey, Assistant Professor of Law at Willamette University's College of Law in Oregon, about the debt ceiling, the platinum coin and more.
Grey explains how and why the US federal government came to have a debt ceiling, when the debt ceiling became a political football, what the idea of minting a US$1 trillion platinum coin is all about, and where it comes from.
"It sounds ridiculous, it almost shocks the conscious, but it is legal," Grey says, adding that the US government actually minting the coin would be "a public education moment."
"If there's one thing that the President and the Treasury Secretary are not allowed to do it's default. There's no constitutional authority to default. The 14th Amendment says you cannot do it, the existing laws say you cannot do it, Congress did not give them an option to default. They gave them multiple pathways to finance spending and they told them they had to spend. So at the end of the day even if Biden really hates it, even if it really makes him feel stupid and silly, the coin isn't a choice. It is the last option before an unthinkable, prohibited option," says Grey.
"What a coin represents in my opinion, is the bringing back of the budget to a level that the public can understand. No complicated bond markets, no complicated debt instruments, it's something that you can talk to your seven year-old about. And to me it's only silly to people who think sounding very serious is being very serious."
80 Comments
Absolutely, it's all make believe. Once you start to get your head around the absurdity of fiat, it's obvious why Bitcoin is a far superior form of money.
And far easier to understand why it has value (cost of energy to create, fixed supply, ability to make final settlement anywhere in the world in minutes without needing permission).
Vs "this coin is now worth a trillion dollars because we say so".
It's just an exchange of one for another. Why is gold or silver brought with fiat? The difference is 'regular money' is constantly losing purchasing power over time. Both against Bitcoin and every other good or service you buy in your life. The 'minting' of this 'trillion dollar' coin is a devaluation in the value of the money you currently hold. They're effectively stealing that purchasing power from you every time the money supply is expanded.
Bitcoin used to be promoted as a type of money in its own right rather than just a form of speculation. Its far too volatile to even be useful as a store of value.
Only on short time preferences. If you look at BTC over its history (on a log scale chart), its performance as a SOV is not volatile.
It's 100% faith based, there is no probability.
Everything is about probability. For example, if there is a universal truth that 'house prices double every 7-10 years', then the probability is 100%.
What's the probability that BTC has performed as a SOV? Well that depends on your parameters. But if we use its out-performance over a time period (say 4 years+) relative to inflation, then we can say with 100% probability that it has performed as a SOV. But there are no universal truths that you can apply to ol' ratty so you cannot assign a probability into the future.
If there was probability at play you'd be able to make more reliable surpluses (assuming you knew the odds).
There is probability in everything. The fact that you don't know the future price of BTC is irrelevant. I recommend you read about Bayes Theorem - probability of an event, based on prior knowledge of conditions that might be related to the event.
If we apply Bayes Theorem to BTC, the probability of its price going to zero is very low.
"Probability" implies a measurable likelihood.
You are hoping over a long enough time your investment will yield a digital Valhalla.
One is a percentage, and the other is only binary. Thinking you can't lose on every dollar you invest in anything is a dangerous assumption.
You're spinning your own narrative about what I believe. Why don't I just tell you?
Do i think BTC can go to zero. Yes. Do I think the risk-reward is too great for an individual? In my own individual case, no. Do I think ol' ratty can deliver asymmetrical returns and behave as a SOV? Yes I do. Can I assign a probability to that thought. No I cannot.
Do I think normies should own BTC? If they cannot put in the time and effort to come to their own conclusions, no I don't.
You're spinning your own narrative about what I believe. Why don't I just tell you?
I'm not really trying to establish specifics regarding your beliefs. But if you want to put them out there, ok.
Do I think ol' ratty can deliver asymmetrical returns and behave as a SOV? Yes I do.
Of course you do, you NEED it to. Because it doesn't deliver returns with any probability, you are upside down on this from a pure time/energy vs return perspective. So the only reason you have interest, is for this "assymetrical" return - and in the meantime you can say it's still a good investment, because if you stand back and look long term, it hasn't gone bust yet so it's sound.
Do I think normies should own BTC? If they cannot put in the time and effort to come to their own conclusions, no I don't.
Is the exact sort of "open minded types only, no sceptics allowed" entry requirements many religions have. Most sound principles can be explained succinctly (or at all). If it requires an increasingly elaborate or convoluted narrative, chances increase its bollocks.
and in the meantime you can say it's still a good investment, because if you stand back and look long term, it hasn't gone bust yet so it's sound.
Wrong. Is it a good "investment"? For me, yes. For other people, maybe not. BTC doesn't "go bust". It's not a corporation, SME, or h'hold.
Is the exact sort of "open minded types only, no sceptics allowed" entry requirements many religions have.
Everyone is entitled to their opinion about BTC. It's not a religion. Even BTC proponents have different reasons and beliefs for owning it.
Wrong. Is it a good "investment"? For me, yes.
But only for that hope of asymmetry, yeah? Like as an actual, here and now, what can I pull out of this thing vs. what I've invested (time and money), it's dreadful, right?
I'm just being crazy and assuming most investments are done on the basis of achieving a net positive return.
But only for that hope of asymmetry, yeah? Like as an actual, here and now, what can I pull out of this thing vs. what I've invested (time and money), it's dreadful, right?
Those are questions that you have to answer for yourself. And it's simple:
1. Do I understand BTC? No. Don't buy BTC.
2. Is there too much time, effort, risk involved for me? Yes. Don't buy BTC.
I asked you the question. It's information only you can provide. Answering the question so indirectly says a lot.
That lonewolf guy, sounds like he made a great return on his Crypto investment in the past. Put in X, get out Y. Likely hundreds or thousands of percent.
The way you talk up your crypto investment is based on your belief it'll be worth a lot in the future. So you're likely upside down in it ("upside down" being you put in more than it can return you), otherwise you'd be crowing how much you've slayed it.
Depends on your strategy and objective.
The objective of investing is generally to make net positive returns. The strategy can vary, but a positive outcome is objectively measurable.
You have cited spending 10,000+ hrs devoted to crypto. Let's just say your time is worth $40 an hour. If you've made that time invested back in net returns, hats off to you.
Yeah pretty funny, what's next all the other cryptos must but be counterfeit right ?
Incorrect. The major difference right now between ol' ratty and "crypto" is that the former is being viewed by U.S. institutions as a commodity, while the latter are being viewed as securities.
There is only one Bitcoin with no real competitors.
This thread if anything has shown those who actually understand Bitcoin and those who are too mentally old to admit they don't know anything about it.
Pure insanity. It's performed better than gold consitently for a decade now, I'm looking forward to the the oldies passing on and next generation wealth undersanding the importance of owning some of theit wealth in sound money.
Sell the old property ponzi holiday home for some good ol Satoshis. Nothing is as scarce as Bitcoin
>And far easier to understand why it has value (cost of energy to create,
Cost of energy to create isn't something that gives it value, it's just wasted energy. It's like saying human waste has high value because lots of energy and effort went into the food that became the human waste. Nope, expensive shit is still just shit.
Cost of energy to create isn't something that gives it value, it's just wasted energy. It's like saying human waste has high value because lots of energy and effort went into the food that became the human waste. Nope, expensive shit is still just shit.
You didn't put much thought into this comment did you
While I agree that fiat money is make believe, bitcoin is definitely not the answer either that is make believe too, how can bits on a computer be real. It solves nothing, makes doing transaction massively inefficient. And doesn't work as a currency in any practical way.
Would I like a currency that government couldn't print on a whim, that financial institutions didn't take their cut for doing nothing, sounds great but bitcoin is not the answer.
You seem interested enough in the current problems to do a bit of due diligence on BTC. I agree it's not easy concepts to get your head around at first. But understanding fiat money is actually significantly harder in my opinion. Mainly because the more you learn, the less it all makes sense. With Bitcoin the exact opposite is true, it just starts hard as it's so different from what we are used to. Take some proper time to investigate the issues, and you'll find the answer to those questions.
This would not help overall in my opinion even if it is constitutionally-sound.
If the US government is not able to solve their budgetary issues in a mature functional way it shows how dysfunctional the government is and would hurt their credibility regardless of any trillion dollar coin. There would be a crisis of confidence in the US and that would be a big problem.
When RBNZ extended the Crown overdraft facility from $5bn to $10bn in March 2020 they were creating a virtual $5bn coin. There is nothing to stop the Crown overdraft being $100bn of course - it cancels out on the Crown books (an asset for RBNZ, a liability for Govt).
The sooner people realise that Govt does not 'borrow money' from rich people or rely on taxation for spending, the sooner we can get on with running the economy like adults.
Nothing that Rohan Grey tells us is new to those who listen to MMT economists rather than the mainstream. MMT has been stating these facts for twenty five years now and MMT also accurately describes how banking works when the mainstream don't even get that process right.
To be fair, my reading of the MMT literature is that they are describing how banking (state and commercial) and Govt finances actually work. You won't find anyone knowledgeable that disagrees with their analysis of how things work.
Where people disagree typically is how Govts should use their power to create endless amounts of their own currency, and the role of monetary policy and independent central banks etc
Hahaha good one.... oh wait he wasn't kidding...
it's something that you can talk to your seven year-old about. And to me it's only silly to people who think sounding very serious is being very serious.
Lol another MMT "print-4eva" advocate, completely oblivious to unintended consequences. Ask the same seven year-old when he/she turns 20. Will be very grateful hundreds of quadrillions were printed into existence causing even more unimaginable wealth gap and slaving away for a miniscule piece of paper the government prints out of nothing. Hunger games next :P Future generations are screwed :D
MMT is a description of how the monetary system works, it does not prescribe anything other than a job guarantee as an economic stabiliser rather than using monetary policy which causes far more problems. You have no issue with the banks creating hundreds of billions of dollars just to inflate the price of houses I suppose. Best that you study a subject first rather that rely on second hand information of what you think it says.
You have no issue with the banks creating hundreds of billions of dollars just to inflate the price of houses I suppose.
But even MMT advocates are unlikely to have an issue with this. The criticisms towards MMT are not about its validity, but more as to how it influences policy and the monetary status quo. And let's face it, MMT is very much a description of how the monetary system works as created by the Anglosphere. Things are rapidly changing and I wonder about its relevance if those countries outside the club reject the monetary hegemony.
Safe to say that Japan and China have already rejected monetarism. Others will follow.
The challenge for a lot of countries in the global south is that the global finance system keeps them in bondage. The IMF is there to help (lol) but lends them money in US dollars, which leaves them effectively at the mercy of the Fed and stuck in a doom loop of exporting primary goods and cheap labour, and importing technology and oil. There are some good people now advising those countries on how they achieve monetary sovereignty (with food and energy security being the first step).
MMT only describes sovereign currencies and which are those that don't borrow in a foreign currency or try to defend a fixed exchange rate. MMT economists in general don't place much faith in monetarism. An article here by Bill Mitchell as an example.
Reliance on monetary policy is mindless, ideological nonsense. https://billmitchell.org/blog/?p=42647
Tl.... As far as I know MMT does not negate the private banking systems ability to create credit ?
MMT is no more or less than just another " map" to describe a process of money debasement....and the nature of money.
I get the feeling u think it is the "truth"..... and something special. ...
It's just a theory....that starts off with the theory of chartilism. ( Which I don't necessarily agree with ).
https://en.wikipedia.org/wiki/Chartalism
http://wfhummel.net/metallismchartalism.html#:~:text=Chartalism%20is%20….
As I said MMT describes how banking works and that is as a creator of credit money, whereas mainstream economists believe in banks as lenders of loanable funds or as money multipliers of central bank money. MMT is a window into the operation of our monetary system and reveals the fallacy of what we are told on a daily basis.Why should we be lead to believe that the government is creating a debt that future generations will be obliged to repay. People should be provided with the correct information and not nonsense and how can our politicians provide the correct policies when they have a false understanding of how things work.
.Why should we be lead to believe that the government is creating a debt that future generations will be obliged to repay.
Now this is where things get tricky. Your argument would be that there is no future debt obligation, right? And technically you could be correct. But I would argue that there is a debt to pay indirectly. People say that the largesse of Greece could not be rectified because Greece does not have its own sovereign currency. Possibly. But we cannot know for sure what would have happened in the case where Greece did have its own sovereign currency. Would it have collapsed? Obviously not to the same extent as the Argentina Peso.
But how would having a sovereign currency made things any better for Greece? I'm not really sure how.
Where Would NZ be without its own currency, up the creek without a paddle most likely and that is why we should never have a shared currency with Australia. MMT economists have written extensively about Greece and the folly of the Euro currency. Government debt is just a part of our base money supply issued by the government.Tax it away and all we are left with is bank created money and no net savings.
Where Would NZ be without its own currency, up the creek without a paddle most likely and that is why we should never have a shared currency with Australia.
Many countries have their own sovereign currencies. But unless they prescribe to the monetary hegemony, it's somewhat meaningless. The more your currency is diluted, the greater the chance its value diminishes. History has shown that to be the case. I don't see why free-floating exchange rates have created the perfect monetary system. NZD is always among the most traded currency pairs. Is that because NZD is somewhat special or valuable? I don't believe so. It's only heavily traded because it checks all the boxes that the monetary ruling elite want. To me, it highlights how broken the system is.
Argentina is up the creek with no paddle .... and they have their own currency. Maybe they are extreme MMTers" ?
https://www.washingtonpost.com/business/2023/04/06/why-70-inflation-is-…
I'd suggest their extreme inflation is a result of the debasement of their own currency.
Which of course.... make borrowing in Foreign currencies very problematic.
Dont completely blame Argentinas' woes on American hegemony !
I feel it is a little glib that MMT asserts that a sovereign currency issuer can never go broke... Monetizing debt can be profounding destructive , with consequences that are akin to going broke...or worse.
"Why should we be lead to believe that the government is creating a debt that future generations will be obliged to repay."
Like I said...MMT is just one view. Unless u redefine the word 'debt"... then deficit spending is debt based... which a future generation has to repay.
MMT repackages the concept of monetizing debt.... ( which is a form of "tax" on all holders of fiat money )...to make it look like a form of "free wealth".
MMt is not a new idea/concept.... I see it as a "repackaging" of age old ideas about money/state, that they played around with to fit in with the "electronic/computer age" of Banking.... out of which comes MMts' Central thesis that Govts dont tax to spend. ( simply an argument about timing of transactions, in my view and NOT some kind of profound revelation and new understanding.....in my view )
I dont see it as a coincidence that inflation reared its head on Bidens watch... ( Kelton has been an adviser to the democrats for a while ).
https://www.advisorperspectives.com/articles/2021/06/04/stephanie-kelto…
there are parts of MMT I really like, .... AND... I feel that MMT became another ideology... that promises alot more than it can deliver....and fails to properly address the serious problem of the fallacy of policy makers.... ie.. Most of the past financial crises have their roots in bad policy making, maybe as the result of regulatory capture, but more likely because of short term agendas.
If u want a flexible frame of reference that helps one to be open minded...read this. (Warburton saw the current inflationary climate coming back in 2019 )
https://www.ruffer.co.uk/en/thinking/articles/the-ruffer-review/2020-03…
MMT repackages the concept of monetizing debt.... ( which is a form of "tax" on all holders of fiat money )...to make it look like a form of "free wealth".
You're missing what I consider the key insight from MMT - that we live in a world of balance sheets, and the Govt deficit is the non-Govt surplus. The $20 in your pocket is $20 of Govt 'debt'. If you pay your taxes with that $20, the Govt debt goes down $20. If Govt pay you $200 to common in interest.co.nz, the Govt debt goes up by $200 (and you're richer by the same amount).
Sectoral Balances describes the financial flows between the three sectors of the economy and they must net to zero. Economist Wynne Godley worked for the British Treasury and so he wasn't just some radical. Economist Steve Keen has a number of videos on YouTube where he displays the financial flows using Minsky charts.
jfoe, We dont live in a world of balance sheets... Balance sheets are an accounting convention....a derivative of an underlying reality.
Say that tomorrow the Govt ceased to exist.. and instead Local bodies took over the running of things....
Central Bank/private banking continued to exist. ( after all , they are supposedly separate from Govt ?)
Life would go on. There would still be private sector "financial savings". They are not dependent on a Govt.... AND...this time the balance sheet would be between those private sector entities/individuals with financial assets vs those that have financial liabilities.
I dont see any "magical" understanding that comes just from sectoral balance sheet watching/reading ...without deeper understanding of the real economy ( vs the financial economy ) ..eg.. the idea that financial wealth does not equal real wealth...etc.
Balance sheet , sectoral accounting would still happen.... because credit money comes into existence as both a debit and a credit.. ie. someones financial asset is another persons liability....
All in the private sector..
I'd rather have an understanding of underlying economics and of the different Monetary systems, thru history.... rather than using sectoral balances to try and understand things.... and come to conclusions..
just my view... of course...
The Truth About Government Debt
The payments funded by government debt actually increase household wealth. Here’s how it all works.
https://democracyjournal.org/arguments/the-truth-about-government-debt/
richard Vagues' article is an example of Sectoral balance sheet pondering... without looking deeper.
As an example, during the covid crisis we had an economic lockdown... A lot of production stopped ..ie "real " wealth creation diminished.
That was a part of the "supply side shock".
And yet the household sector increased its wealth ??
Because of Govt fiscal stimulus, together with central Bank largess ... Houses prices went ballistic.. Most asset prices went up.
None of this was on the back of productivity.... it was mostly a result of the financial sector ( debt, interest rates ..etc )
The household sector isnt any wealthier.. per se . It is mostly what keynes/ Fisher referred to as a money illusion.... (the diminishing purchasing power of money...ie,. monetary inflation )
Even thou the house might be worth more in nominal terms .... if you sell it you can only buy another house that is about the same.
A forever increasing money supply ( debt ) IS NOT a path to real wealth... in itself.
In a real sense...I'd say that USA is a far less wealthy country than it was 50 yrs ago.... Same with NZ.
If you can see that the real wealth of a nation is a function of its Natural resources and its productivity ( which is function of work ethic , education, innovation, creativity , entrepreneurship..etc)... then you will see that a country cant get wealthy thru Govt deficit spending..... its an illusion based on more fiat money bidding up prices.
I agree with ray Dalio about the impilcations of a long term debt cycle.. https://www.principles.com/big-debt-crises
richard Vagues' article is an example of Sectoral balance sheet pondering... without looking deeper.
Sectoral balances is something I generally understand, but something doesn't add up to me (ignore the pun).
If you can see that the real wealth of a nation is a function of its Natural resources and its productivity ( which is function of work ethic , education, innovation, creativity , entrepreneurship..etc)... then you will see that a country cant get wealthy thru Govt deficit spending..... its an illusion based on more fiat money bidding up prices.
I've heard the argument that net creditor nations like Germany, Switzerland, Japan are 'losers'; while debtor nations like NZ, Aussie, U.S. are playing a better hand.
The US deficit is only 6% of GDP, it would be shock treatment and likely cause a recession but to say it's over for the US servicing it's debt if they don't raise the debt limit is likely an exaggeration.
Just stopping farm subsidies alone would cover half the shortfall (though RIP developing countries.)
Way to go Alaska. Just a speculation but Alaska seems to be a place where trust in the Federal govt and its agents is possibly lower.
In the final days of the legislative session, the Alaska House passed a bill that would allow gold and silver to be used as legal tender.
House Bill 3, introduced by Big Lake Republican Rep. Kevin McCabe, would allow business owners to decide if they want to accept the precious metals as currency. The coin or bar would need to be refined and its value would need to be authenticated, meaning gold dust or nuggets could not be used.
https://www.adn.com/politics/alaska-legislature/2023/05/11/alaska-house…
Financial journalist Felix Salmon discusses how Covid created an economic paradigm shift affecting everything from labor markets to millennial investing. He advocates for ending the debt ceiling and says minting money would be better than a default.
From 12:50, Felix goes into printing money, MMT, and the minting of the coin.
The interviewer's face is priceless.
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